Today’s historic lifetime estate and gift tax exemptions are set to expire in 2025.
These exemptions allow taxpayers to pass a certain value of assets to heirs at death and/or during life without paying estate or gift tax.
Now is an opportune moment for families with substantial wealth to take advantage of potential tax savings that could increase their wealth transfer by millions of dollars.
Kelli J. Stiles is vice president of sophisticated planning strategies at Northwestern Mutual.
Tax-efficient wealth transfers enable you to pass more of the wealth you’ve worked so hard to build to future generations. And right now, high-net-worth Americans have what may be a once-in-a-lifetime “use it or lose it” opportunity to do just that.
When the clock strikes midnight on Dec. 31, 2025, a key provision of the Tax Cuts & Jobs Act (TCJA) that impacts the lifetime estate and gift tax exemption is set to expire. By creating your estate plan before then, you may be able to take advantage of the exemption while it’s still at a historic, all-time high.
What’s Happening With the Estate and Gift Tax Exemption?
When the TCJA was enacted, it doubled the lifetime estate and gift tax exemption from $5 million in 2017 to $10 million in 2018. And thanks to recently high inflation, for 2024 the exemption has risen to $13.61 million for individuals or $27.22 million for couples who are married filing jointly. But once this provision expires, the exemption amount will be cut roughly in half, reducing it to an estimated $6.8 million for individuals or $13.6 million for couples.
Let’s leverage attractive planning opportunities while they are available.
Northwestern Mutual financial advisors can help you leave a legacy of generational wealth by leveraging today’s historically high estate tax exemption.Start Planning
How Do Estate and Gift Taxes Work?
Even among the financially savvy, estate and gift taxes are often misunderstood. Here’s a little background to help clarify your understanding of how these taxes and their respective exemptions work.
The estate tax – The estate tax is levied on assets you transfer at death. The value of your taxable estate above the lifetime estate and gift tax exemption at that time (more on that in a moment) is subject to a flat tax of 40 percent, while amounts below that threshold do not incur federal estate tax at all.
The gift tax – The gift tax is like the estate tax except that it applies to property you transfer during your lifetime instead of property that you transfer at death. It even has the same tax rates and shares the lifetime exemption with the estate tax.
The lifetime estate and gift tax exemption – The lifetime estate and gift tax exemption gives every U.S. citizen an opportunity to pass a certain value of assets to heirs at death or during life without paying estate or gift tax. Under today’s law that amount is set to an all-time high of $13.61 million for individuals and $27.22 million for couples. Because this is a unified exemption, the gifts you give during your lifetime can impact the exemption available for the property you transfer at death. Unless Congress intervenes, plan on the exemption dropping to about $6.8 million for individuals (or $13.6 million for couples) starting in 2026.
Who Is Impacted by the Change in Estate and Gift Tax Exemption?
While this legislation impacts Americans with significant wealth, the threshold for impact is not as high as it may seem. That’s because your net worth is likely to grow over time, so taxpayers with the right combination of time horizon, income and asset growth potential could be impacted in the future even though they have substantially less net worth today.
While at Northwestern Mutual we recommend individuals with at least $5 million in net worth or couples with at least $10 million in net worth begin planning now for this change, younger taxpayers with at least $3 million in net worth (or $6 million for couples) combined with a high income and/or strong asset growth potential may also have a planning opportunity. If you think the change in the lifetime estate and gift tax exemption may impact you, a conversation with your Northwestern Mutual financial advisor is a great place to start.
The Impact of Planning
While the actual impact on each estate will vary, families with substantial wealth may be able to significantly increase legacy value over time by taking advantage of today’s historically high exemption. Download our complimentary guide to see how a well-thought-out estate plan for a couple with substantial wealth could result in an additional $30 million of legacy value when compared to not planning at all.
Why Now Is the Time to Act
If you are an individual or part of a couple with substantial wealth and believe you may be affected by this tax change, now truly is the time to begin planning. Here’s why:
- You could save millions – With today’s exemption set to an all-time high, there is an opportunity to potentially save millions in estate taxes by acting before Dec 31, 2025.
- Million-dollar estates can get complicated quickly – Estate plans involving millions of dollars often get complicated quickly and may require help from multiple professionals, including financial advisors, attorneys, accountants, valuation specialists and others, to get the work done right. All told, this process can take 12 to 18 months.
- Avoid the eleventh-hour rush – Estate planning attorneys and tax accountants who handle these matters are already busy helping clients get plans in place. As the deadline approaches, more and more affluent Americans will likely discover the opportunity at hand and want to take advantage. This could result in a “traffic jam,” forcing law firms and CPA firms to turn clients away.
- This is a “use it or lose it” opportunity – This is truly a “use it or lose it" opportunity that is unlikely to be available in the future.
Get Started Today
If you have substantial wealth, now is the time to get a formal wealth transfer plan in place. And if you already have one, now is the time to get a second opinion. With access to proprietary financial modeling software and a dedicated team of estate, tax and business planning experts, your Northwestern Mutual financial advisor is well positioned to help you get started on your legacy planning goals and leverage this “use it or lose it” opportunity before it’s too late.
Tax rates as of 2024, subject to change.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.
As Vice President, Sophisticated Planning Strategies here at Northwestern Mutual, I lead a team of attorneys and accountants who partner with our top financial advisors and their clients to solve complex tax and legal matters related to their financial plans. As both an attorney and CPA, I’ve been doing this kind of work for more than 30 years and have had the privilege of helping clients optimize their taxes, transfer wealth, develop business succession plans and more.
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